A long time ago I worked for a company that had a "cost plus" contract to build and operate a thing. I took a management class while I was there and one of the people in the class was a consultant who had been hired to map the division's revenue flow. Almost everyone there was a manager and all of them were on the edge of their seats while he explained.

Basically, you mark up the little stuff that everything is built on ($1/page for copies, for example) so the margins look smaller when you get to anything substantial. So 3.3% is a meaningless number until it has been audited all the way down to the smallest purchases.

Well if the market price for something is X and your margins are small but X is big you do well. But someone can innovate and do it for half X and now his margins are 50% so he makes more money.

The question is why can't I provide insurance at the market price and just bring in efficiencies to get my cost down and margin up?

The reason is that it's not a real market through onerous regulations. People are forced to buy it, new entrants aren't allowed and there is an implicit threat that if margins get big politicians will come after you. So were stuck in this crappy system